June Bloom: Ten Clean Energy Stocks For 2014, Q2 Update

Tom Konrad CFA

After two weak months, June brought a strong recovery to clean
energy stocks and the market in general. The broad market
benchmark IWM put on 7.2%, reversing its previous loss for the year
to enter the 4th of July holiday up 4.7%. My clean energy
benchmark PBW shot up 8.6%, for year to date gains of 9.9%.
Meanwhile my relatively conservative 10
Clean Energy Stocks for 2014 model portfolio rose 3.6%,
retaining its lead on the broad market with a 7% gain so far this
year, but falling back behind more volatile clean energy
stocks.

Performance details are shown in the chart below, as well as in the
individual stock notes which follow. Note that the chart is
click-able for a larger version. The numbers to the left of
the blue diamonds are US$ returns since the last update, those on
the red bars are returns so far this year.

Individual Stock Notes

(Current prices as of July 3rd, 2014. The "High Target"
and "Low Target" represent my December predictions of the ranges
within which these stocks would end the year, barring
extraordinary events.)

Sustainable Infrastructure REIT Hannon Armstrong paid a second
quarter dividend of $0.22. I had hoped for a small dividend
increase, but given that the company's policy is to pay 100% of
core earnings in the form of dividends, I will place more
importance on the company's soon-to-be announced second quarter
core earnings than on the dividend payment. I hope to see
core earnings on track for the 15% annual increase management has
said to expect through the end of 2015.

Independent power producer Capstone Infrastructure announced its
regular quarterly dividend of C$0.075, payable to shareholders of
record as of July 31st. After the stocks' recent gains, RBC
Capital lowered its rating to "sector perform." I also think
we have seen most of the gains we can expect from Capstone stock
this year, but continue to hold my position. I think the
7.4% current yield remains quite attractive and could lead to
additional small capital gains while affording significant
downside protection.

Waste heat recovery firm Primary Energy posted significant gains
in June after confirming
market rumors that it "is engaged in a strategic review
process to generate shareholder value," although no agreement has
been reached. The possibility that Primary Energy might be
for sale was part of the reason I included the company in the
portfolio at the start of the year.

Bicycle manufacturer and distributor Accell Group paid its 2013
annual distribution of €0.55. The dividend is set on an
annual basis based on last year's profits. Since sales have
been better so far this year, I expect next year's distribution to
be higher.

Leading transit bus manufacturer New Flyer announced
it would consolidate its transit bus and bus rapid transit
models around its Xcelsior platform. Production of the LFW
and BRT models acquired last year with the purchase of rival NABI
would be phased out in the second half of 2015. The
Excelsior's BRT styling options would be enhanced by building on
NABI's BRT experience. Cannaccord Genuity reaffirmed its
hold rating on New Flyer, but upped its price target to C$11.75
from C$11.50.

Ameresco CEO and founder George Sakellaris added another 50,000
shares to his already large stake in the energy performance
contracting firm. This and previous insider purchases discussed
last month pushed the stock over $7, well above the low of $5.59
seen in early May.

Investors seemed unimpressed with the full year results of global
provider of software as a service fleet and mobile asset management,
MiX Telematics at the start of June. While I found the report
in line with the company's business plan and mildly encouraging
overall, the stock continued to fall after the announcement.

Company insiders seemed to share my positive sentiments, and began
purchasing the stock on the open market. MiX CEO Stefan
Joselowitz bought the equivalent of 26,000 shares at $9.77 [pdf]
while a company director bought the equivalent of 4,844 shares at
$9.40-$9.50 [pdf].
This news seems to have reversed the stock's decline, and MIXT ended
the month up by 1.6%.

Wind project developer Finavera gained on the issuance
of an Environmental Assessment Certificate to the Meikle
Wind project recently sold to Pattern Energy Group (NASD:PEGI.)
This brings Finavera one step closer to receiving the
approximately $19 million which will be due from Pattern upon the
arrangement of project financing.

Nevertheless, the stock remains in the doldrums due to lack of
promised announcements regarding Finavera's future renewable
energy development ventures. The press release included some
familiar boilerplate "With proceeds from the sale, Finavera plans
to aggressively reduce short and long term debt and focus on
another fast growing area of renewable energy development.
Finavera is working on transactions to put forward for shareholder
approval at our AGM," but the lack of detail is clearly
frustrating to shareholders.

Final Thoughts: The Yieldco Boom

Valuations of alternative energy "Yeildcos" such as NRG Yield
(NYSE:NYLD)
and the recently launched Abengoa Yield (NASD:ABY)
have risen rapidly in recent months, to the point where there is
little more yield in many "Yieldcos" than in traditional utility
stocks. (NYLD and ABY currently pay 2.7% and 2.8% on an
annual basis.)

These and other Yieldcos are creating a large pool of low cost
capital available to finance alternative energy
infrastructure. Demand remains strong: NextEra Energy
Partners (NYSE:NEP)
rose 38% to $34.61 in the first day of trading on July 3rd.
At the initial dividend rate of $0.75 annually, the yield is only
2.2%, below even the parent company NextEra Energy's (NYSE:NEE)
2.9% yield.

The Yeildcos themselves may have trouble advancing from their
current lofty valuations, but the low cost capital they bring is
likely to raise the price and of existing alternative energy
infrastructure, and make new alternative energy projects easier to
finance. While the Yieldcos' parent companies are the most
obvious beneficiaries, all current owners, developers, and
suppliers to renewable energy projects are likely to feel its
effects. In this list, those include Hannon Armstrong,
Capstone Infrastructure, Primary Energy, Ameresco, and
Alterra.

It's entirely possible that Primary Energy's "strategic
negotiations," discussed above, are with the sponsor of a current
or future Yieldco. At Yeildco prices, the stock would be
worth US $7 or C$7.46 a share (based on a 4% yield and the current
annual dividend of $0.28.)

DISCLAIMER: Past performance is
not a guarantee or a reliable indicator of future results.
This article contains the current opinions of the author and
such opinions are subject to change without notice. This
article has been distributed for informational purposes only.
Forecasts, estimates, and certain information contained herein
should not be considered as investment advice or a
recommendation of any particular security, strategy or
investment product. Information contained herein has been
obtained from sources believed to be reliable, but not
guaranteed.